Should you bring on a partner during the start up phase of your nurse practitioner business? Should you bring on a partner if you are already have a practice and want to grow it? These are questions I hear often on the Elite NP Facebook group and through email, so I want to talk about partnerships and what they mean for your business.
Business partnerships are just that: 2 or more individuals going in on a business. The splits can be equal (50/50) or one person can have more equity than the other (70/30). The person with the most equity has the ultimate control over the business, so most people go into partnerships on a 50/50 split. Regardless, the business is owned by 2 or more individuals vs. just yourself when you operate your own niche practice in a partnership setup.
First, lets talk about entity structure with a partnership. You have multiple options, but I will discuss the most commonly used structure that is available in all states. In true Elite NP fashion, we will keep this as simple as possible.
One way you can form a partnership is by forming a multi-member LLC or a limited liability partnership (LLP). The name implies what this is: a limited liability company that is owned by multiple individuals. This is very simple to create and is the same process of starting a single member LLC, but you have multiple individuals owning the LLC/LLP. The operating agreement would outline the financial contributions of each owner, how the profits will be distributed, what equity percentages each owner has, and who is responsible for certain management and operational decisions. When you create a multimember LLC/LLP, you really should have a lawyer draft this document as things can go south in partnerships, therefore you want to ensure everyone’s best interests are taken care of.
So, who owns the partnership? You? Another LLC? In my opinion, I think each partner should be a separate LLC that they own. Sure, you could put your name on it, but why not add another layer of protection and privacy to the business? Here are the 2 structures:
LLP > owned by each partner individually.
LLP > owned by multiple LLCs that are each owned by each individual.
If someone wanted to go to the Secretary of States website and see who owned the LLP, one of 2 things would happen depending on how you structure this:
- Everyone who owns the LLP would be named as the separate owners if no LLCs were utilized.
- Everyone’s LLC who owns the LLP would be named as the separate owners instead if LLCs were utilized.
What does this mean? Well, if you own a Wyoming LLC where your privacy is 100% protected, then it would be a dead end if someone was trying to determine who actually owned the LLP if you used that Wyoming LLC for your portion of the partnership. If you use another states LLC for your portion of the partnership, then someone could look up that LLC and find out who owns it. This is one way you protect your privacy in a partnership scenario. Additionally, if the LLP was ever sued, then the liability would pass to each owners LLC vs themselves adding another layer of asset protection. I hope this makes sense and here is my recommendation:
If you are going to have a partnership with other individuals, then be sure YOUR PORTION of the partnership is owned by a separate LLC that you control. DO NOT OWN IT UNDER YOUR PERSONAL NAME. Who cares what the partners do, you need to look after YOUR BEST INTERESTS.
Alright, so that is how you are going to structure the partnership. It is pretty simple, and this is always what I have done with various partnerships I have pursued.
So, this brings us to our next question. Should you pursue partnerships? The answer is “it depends.” Ask yourself this question:
Do I absolutely need the help of this individual?
Essentially, does this person bring significant value to the partnership and/or does this business require their skills and resources?
If the answer is yes, then go with the partnership.
If the answer is no, then DON’T go with the partnership. Why give away equity in a business if you don’t need to? And this is the answer that I come to with most nurse practitioners I consult with on this matter. Why? Because the partner is not bringing anything of significant value to the business. They are just there as a safety blanket. A “just in case” basically. Most people feel better about starting a business with a friend because they think it spreads the risk out and will make it easier. Well, you know what? Often times it makes it MORE DIFFICULT.
Listen, if you don’t need the help of the individual you are partnering with (either financially or for a valuable skill they bring to the table that is necessary to operate the business), then don’t partner with them. Splitting equity in a business sucks, especially if one person is bringing more value to the table than another. This breeds resentment and conflict…
Additionally, disagreements and drama are bound to happen in a partnership. Remember that old saying “there are too many chiefs and not enough indians?” Well, that tends to happen in partnerships and is a reason why they can fail. Various owners can have differing opinions that often conflict with one another. This causes problems and can ultimately lead to the collapse of the business.
You also need to consider the trust factor. Do you know how many times I have heard of a partner stealing thousands upon thousands of dollars from a shared business bank account? Too many times to count… Remember, when you are in a partnership, each owner will have access to the businesses bank accounts and financials. So, when you partner with someone, you better be damn sure you trust this individual!
So ultimately folks, if you want to pursue a partnership with a friend or colleague, then ensure the following parameters are met:
- Your portion of the partnership is owned through a separate LLC that you control. NOT OWNED YOURSELF!
- The individual/individuals you are partnering with are bringing financial resources or skills to the table that you absolutely need to get started. For example, if your niche practice will cost $10,000 to start (which is totally realistic), and you have the $10,000, then why partner with someone? Or if you know how to do hormone replacement therapy, as does your friend, then why partner? What is this potential partner bringing to the table? Do you TRULY need them?
- You trust this individual explicitly.
- Your partners are on the same page as you in terms of morals, goals, thought processes, and outlooks.
If any of these are not met, then be wary. I am telling you; partnerships often end because of conflict. So, be cautious when considering one!